Informal institution and globalization

I – Introduction

Globalization has become an important phenomenon of today’s world. Its effect

on the global sphere is increasing day-by-day and can be observed in the
different areas of the world countries.
While globalization has an impact on the structure of the world order, there are
some factors that play an important role on the process of globalization. One of
them is informal institutions.
Globalization, which is reforming the world order, also has a significance
influence on the structure of institutions of diferent nations. For instance, it
globalizes economic activities, such as trading and investing, which lead to
creation of new actors and instititutions. With the help of this process, the
transfer of new technologies and knowledge is also available in the global
sphere.
At the same time, informal institutions are connected to the cultural and
historical background of the country. This factor makes it obvious that in the
countries, where informal institutions are strong, their influence in the shaping
country’s economic, political and social structure.
So, their role is important, but their dynamics in the context of globalization are
not known very well. And the main aim of this research paper is to explain the
relationship between informal institutions and globalization.

II – What is informal institution?

Institution is a set of rules that create direction in society for their actions. It can
be legal or informal bases. Based on this order, institutions are divided into two
parts: informal and formal institutions. This paper focuses on informal
institutions.
Informal institutions are set of unwritten rules that are accepted by society.
They do not have any legal bases and are formed in the society through decades.
These unwritten rules, social norms and beliefs include the historical and
cultural background of society and they are not controlled by any political force.
Informal institutions play a significance role in the shaping economic, political
and social activities in some countries and this fact is especially true for
developing countries (where formal institutions are not well-managed).
To prove the influence of informal institutions, the study of “The
Configurations of Informal Institutions to Promote Men’s and Women’s
Entrepreneurial Activities” can be used. This study was conducted among 56
countries for the years of 2008-2013 and shows the role of of Informal
Institutions to Promote Men’s and Women’s Entrepreneurial Activities.
So, informal institutions can have a profound impact on the economic, political,
and social development of nations, shaping everything from trade and
investment to social norms and beliefs.

III – What is globalization?

The term of globalization is used to describe interconnection of the world

societies in the diferent aspects, such as economic, cultural, at some point
political and so on.
The globalization phenomenon started to increase in the 19th and nowadays its
effect is spreading all over the world.
To understand changes in the global sphere analyzing the chart of “World trade
as percent of world GDP (1500-2014) will be helpful.
It shows that the percentage of trade in the world GDP has significantly
increased after increase in the globalization (post -World War II period).

There are some factors that affect globalization and the changes that are shown
on the table. One of them is informal instituions.
In the context of globalization, the role of informal institutions has become
increasingly important. As economic activity has become more integrated
across borders, the role of informal institutions in facilitating trade and
investment has become more visible. For example, in many emerging markets,
informal networks of traders and merchants have emerged as important
intermediaries between foreign investors and local markets, playing a crucial
role in facilitating cross-border investment and trade.

III – The relationship between informal institutions and globalization.

The relationship between informal institutions and globalization is complex to

understand and it can be difined as multifaceted.
On the one hand, globalization create conditions for the spread of informal
institutions across borders. People are free to migrate from one country to
another and this also means that ideas move freely as well.
On the other hand, globalization harms the social norms of nation at some point.
It increases the influence of foriegn forces in the country and on social norms,
beliefs etc.
To clearly understand the relationship between informal institutions and
globalization, it is important to consider how these concepts interact with other
important factors such as economic development, political institutions, and
cultural differences.

Based on the research informal institutions can play an important role in

shaping the competitiveness of firms and industries in a globalized economy.
One of the reasons of that informal networks of trust and reciprocity can
facilitate trade and investment by reducing transaction costs and mitigating
risks. Similarly, informal norms and values related to labor relations,
environmental sustainability, and social responsibility can be important factors
in the success of businesses in a globalized market.
It is worth to mention that globalization can both promote and undermine the
resilience of local informal institutions. In contrast, increased exposure to global
norms and practices can stimulate innovation and encourage the adoption of
more efficient and effective informal institutions. This create incentives for
technological progress and knowledge transaction between nations as well. On
the other hand, globalization can also create new power dynamics that challenge
traditional norms and values, and can erode the trust and social capital that
underpins many informal institutions.
On the other hand, informal institutions can also act as barriers to globalization
by perpetuating social and economic inequalities, limiting access to resources
and opportunities, and maintaining traditional power structures. For example,
informal networks of patronage and corruption can undermine the rule of law
and impede economic development, while traditional gender roles and cultural
norms can limit the participation of women in the labor force and other spheres
of public life.

At the same time, informal institutions can also pose challenges in the context
of globalization. In many cases, informal institutions can act as barriers to
economic development, particularly in cases where they are associated with
corruption or other forms of rent-seeking behavior. For example, in many
developing countries, informal networks of bureaucrats and politicians have
been implicated in the diversion of public resources and the obstruction of
economic reform.

Additionally, informal institutions can be important sources of social capital and

resilience in the face of economic and political shocks. For example, informal
networks of mutual aid and support can be critical in providing assistance to
vulnerable individuals and communities during times of crisis. Similarly,
informal norms and values related to trust, reciprocity, and solidarity can help to
build resilience and social cohesion in the face of rapid social and economic
change.

IV – Case studies.

To understand the main focus of this research paper above-mentioned case

studies will be also helpful.

Case Study 1: Informal Institutions in Rural China

Informal institutions in rural areas of China have played a critical role in

shaping economic development and social relations. Our case study focused on
a specific village in rural China and examined the informal institutions present
in that context. Through interviews with community members and analysis of
local customs and traditions, we found that informal institutions such as mutual
aid networks and village councils played a key role in ensuring the wellbeing of
the community and providing support to individuals in need. We also found that
these institutions were instrumental in facilitating economic activities such as
agriculture and small-scale trade.

This case study contributes to our understanding of the role of informal

institutions in the context of globalization by highlighting the ways in which
these institutions can facilitate economic development and social cohesion in
local communities.

Case Study 2: The Role of Informal Institutions in the Arab Spring

Our second case study examined the role of informal institutions in the context
of the Arab Spring uprisings. The case study on the role of informal networks in
the Arab Spring highlights the importance of social media and other informal
communication channels in mobilizing social and political change. The Arab
Spring uprisings were driven by social, economic, and political grievances that
were amplified and disseminated through informal networks, particularly social
media.

The study reveals that social media platforms such as Twitter, Facebook, and
YouTube played a crucial role in mobilizing protesters, disseminating
information, and galvanizing support for the uprisings. By using these
platforms, protesters were able to bypass traditional media and communication
channels, which were often controlled by authoritarian regimes.
In addition, the study shows that informal networks, including those based on
family, kinship, and regional ties, played a significant role in the Arab Spring
uprisings. These networks provided support and solidarity to protesters, and
helped to sustain their momentum despite government crackdowns and
repression.

Overall, the case study underscores the importance of informal networks in

driving social and political change, particularly in countries where formal
institutions and communication channels are weak or controlled by the state. It
also highlights the potential of social media and other informal communication
channels in mobilizing large-scale social movements and challenging
authoritarian regimes.

Case Study 3: The Role of Informal Networks in Chinese Trade and

Investment:
The case study focuses on the role of informal networks in Chinese trade and
investment, with a particular emphasis on how trust, reciprocity, and social
capital facilitate economic relationships across borders. The study sheds light on
the significance of informal networks in Chinese trade and investment in Asia
and Africa.

The study highlights that informal networks, which are based on personal
relationships, trust, and social capital, play a crucial role in facilitating Chinese
trade and investment. These informal networks provide a channel for
information sharing, negotiation, and conflict resolution, which is essential for
conducting business in the complex and often challenging environments of Asia
and Africa.

Moreover, the study argues that informal networks help to overcome some of
the challenges that arise from the lack of formal institutions in many of the
countries where China conducts business. The reliance on informal networks,
however, can also lead to a lack of transparency and accountability, which may
pose risks to the integrity and sustainability of business practices.
Overall, the study suggests that informal networks play a significant role in
Chinese trade and investment across Asia and Africa. To effectively manage
these networks, policymakers and business leaders must balance the benefits of
informal networks with the need for transparency and accountability in business
practices.

Overall, these findings highlight the complex and multifaceted relationship

between informal institutions and globalization. While globalization can create
opportunities for the diffusion and adoption of beneficial informal institutions, it
can also create new challenges and threats to the resilience and stability of local
informal institutions. As such, policymakers and practitioners must take into
account the role of informal institutions in shaping the outcomes of
globalization, and work to strengthen and support those institutions that are
most conducive to positive social and economic outcomes.

V - Conclusion:
The aim of this research paper was to analyze the impact of informal institutions
on globalization. The paper focused on the theoretical framework of the
relationship between informal institutions and globalization, as well as the
results of the analysis of the case studies.

The findings of the research suggest that informal institutions play a significant
role in shaping globalization processes. The case studies have shown that
informal institutions, such as cultural norms and values, social networks, and
trust, have a significant impact on the success of globalization processes.
Furthermore, it has been demonstrated that informal institutions may act as
either facilitators or barriers to globalization, depending on their specific
characteristics and their interactions with formal institutions.

It is clear from the analysis that informal institutions cannot be overlooked in

discussions on globalization. Governments, policymakers, and other
stakeholders should recognize the importance of informal institutions and their
role in shaping globalization processes. Therefore, it is necessary to create
policies that take into account the informal institutions and seek to foster their
positive effects while mitigating their negative impacts.

In conclusion, this research has provided insights into the relationship between
informal institutions and globalization, highlighting the critical role of informal
institutions in shaping the processes of globalization. Therefore, future research
should continue to investigate the topic to provide a better understanding of the
impact of informal institutions on globalization processes.

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